With an ongoing business enterprise, there are always going to be challenges in developing and retaining talent that manages and services the customers of the business. Some would argue that the single most crucial component of a successful business operation is that the entire team is pulling in the same direction and, above all, protecting the brand that provides their income. The hardest thing I encountered as a loss prevention director was realizing that our guard had to be continuously maintained, during customer transactions and particularly during audits.
In the case of Pawn and Loan, some particular employee concerns should be pointed out. The critical thing to remember is that a pawn store employee’s routine involves acting as a retail sales clerk, conducting value appraisals on a wide assortment of items and being a character judge and capable loan officer. While this multitasking can be applauded for these folks, it also offers its share of risk to the organization.
In my years of managing audit protocols in pawn shops, including over 1,000 shops spread out globally for a national brand, we found some particular and equally tricky crimes to detect against our brand. I identified the most common and least detectable shrink issues that we were challenged with below.
- The UPS plan (unauthorized profit sharing). This occurs when a pawn loan attendant simply fails to register loan redemptions or sales and pocketing the cash. The problem is that both will appear as a pledged or inventory item theft, but is a cash theft in reality.
- Friends with Benefits. This crime is defined as simply overvaluing the pawn items for friends or family of the store loan clerk. This loan will most likely never be redeemed and can be detected by indications of a lower pick up rate and higher cost of goods. Most of the time the loan is made in a false name.
- Deceptive redemption. An employee notices that someone loaned $800 on a $10,000 watch, and that the loan has matured, or almost has. The employee or a friend redeems the loan on the undervalued watch for their own benefit. If the employee or friend is bold enough to stretch the value, they will actually resubmit the item for a loan at the newly realized higher value or simply take it to another pawn shop for a loan.
- Ghost loans. This action is simply created by instituting a loan for an item that never actually existed. The item envelope may be generated and actually stored in the proper place. Later when an audit occurs the question may be directed towards, “who may have taken the item”, not was the item ever there in the first place?
- Phantom borrowers. In this instance there is an actual item involved in the loan, but the name used on the transaction is false. This a severely overvalued item could be costume jewelry loaned at a high value, and may pass an auditor’s review simply because it “feels” correct. When the auditor does finally open the envelope and reveal the disparity in the loan to value ratio, it is clear that the name on the loan was fabricated, and the pawn organization will have no recourse on the loan that was made.
- Side-step shuffle. An employee conspires to send customers to a competing business, especially customers that want to undervalue their loan. Even though the employee could institute the loan where they work at, they decline to and recommend the other business. That other business then gives them a cash bonus.
Folks say that the pawn industry is financially fluid and highly profitable because of the inflated interest we realize on fully collateralized loans. The truth that they do not know is there is a calculated amount of shrink (or loss) that is calculated in to each store. How you or your audit manager monitors the mysterious ways store clerks take hard earned value from your organization can be the single most important operational process you have. I urge you all to take nothing for granted when it comes to ways your profits can drift away. The devil is always in the details.